2016 (11) TMI 1233 - ITAT AHMEDABAD

2016 (11) TMI 1233 - ITAT AHMEDABAD - [2016] 51 ITR (Trib) 250 - Commission income earned in cheque discounting activity- Held that:- AO has been emphasizing that he called for information from the bank disclosing that the assessee has made transaction, but the assessee has been refuting this information of the AO. The information is not available on the record. The assessee has challenged the AO as well as took a specific plea before the CIT(A). But the AO is silent in his remand report. Theref .....

mmission income earned in cheque discounting activity. This ground of appeal is allowed.
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Addition on business income - Held that:- There is no evidence with the Revenue to conclude that the assessee was doing business in textile. The AO has assumed business only on the basis of availability of two seals. To our mind it is too hypothetical. In spite of survey, the Department was not able to lay its hand on any incriminating material indicating that active business was conducted by the asses .....

.91 of the paper book. The major amount in this loose paper is a sum of ₹ 7,81,100/-. According to the assessee, this amount was receivable from one Shri Suresbhai Nareshbhai. The assessee had entered into agreement for sale of flat at Rivera Towers. Copy of the agreement to sell was filed before the AO. This flat has been shown by the assessee in fixed assets in the balance sheet. The ld.AO has never tried to verify the facts in this connection. If it was sale proceeds, which was to be re .....

Addition u/s 68 - Held that:- Evidence possessed by the Revenue is the loose paper in coded word. As far as loose paper is concerned, there is no dispute about this fact. The dispute is, what inference one could draw from the page. For drawing inference, we have three statements and nature of assessee’s business plus evidence produced during assessment i.e. confirmation etc. As far as statement of the assessee dated 6.3.2009 is concerned, it was only a corroborative statement, because, it was ta .....

llow this ground of appeal and delete addition.
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Unexplained investment - Held that:- AO did not examine the issue with the angle assessee has given explanation. According to the assessee he has a capital balance of ₹ 30,88,195/-. Under the current assets, he has shown advance for property at Ratan Astha of ₹ 2,50,000/-. The AO has treated this amount as unexplained investment on the ground that on the date of survey the assessee failed to produce books and failed to explain thi .....

fter the survey. Thus, it cannot be said that the investment was not recorded in the books, and therefore, it is an unexplained one
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Unenvestments made through other persons - Held that:- he shares will not be available in physical form in the name of the assessee. Had the shares were available there, then, the assessee could have taken plea that these are not in his name. Thus, once the details of investment was found and the assessee has admitted the investment through other persons, then .....

ment, which has duly been accounted in the books as out of books and explained one - ITA. No. 492/Ahd/2016 - Dated:- 2-9-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER For The Assessee : Shri Rasesh Shah, AR For The Revenue : Shri James Kurian, Sr.DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Assessee is in appeal before the Tribunal against the order of the ld.CIT(A)-II, Surat dated 18.12.2015 passed for the Asstt.Year 2000-10. 2. The assessee has taken foll .....

cts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of ₹ 217995/- on account of difference in cheque discounting income. 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of ₹ 15,08,836/- on account of net profit on textile trading business. 4. On the facts an .....

umstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of ₹ 2,50,000/- on account of unexplained investment. 7. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of ₹ 11,40,920/- on account of unexplained investment in shares. 8. On the facts and circumstances of the case as we .....

issues. 4. Briefly stated facts are that a survey operation under section 133A of the Income Tax Act, 1961 was carried out at the premises of the assessee on 6.3.2009. A notice under section 148 of the Act was issued on 26.12.2011, which was duly served upon the assessee. In response to the notice, the assessee did not file return within time period stipulated in the notice, but filed return on 15.3.2013. It emerges out from the record that the statement of the assessee was recorded on 6.3.2009. .....

e heading. In this way, he has given a colour to the statement, as if it was recorded under section 131 of the Income Tax Act. Other two statements were recorded under section 131 by the Deputy Commissioner of Income Tax, Surat. These were recorded on oath. Copies of these statements are also available at page nos.92 to 99 of the paper book-2. The ld.counsel for the assessee has submitted that evidentiary value of these statements has to be inferred while dealing with various additions made in t .....

Hon ble Kerala High Court decision in the case of Paul Mathews & Sons Vs. CIT, 263 ITR 101 (Ker) and of Hon ble Madras High Court decision in the case of CIT Vs. S. Khadarkhan Son, 300 ITR 157 (Mad.) contended that under sub-section 3 of section 133, officer who carried out the survey upon the premises of the assessee was not authorized to administer oath, and therefore, that statement was taken without taking any oath from the assessee. If the officer is not empowered to administer oath, th .....

ts admissibility cannot be challenged. 6. The issue regarding evidentiary value of the statement taken during the course of survey, has fallen for consideration before the Hon ble Kerala High Court in the case of Paul Mathews and Sons (2003) 263 ITR 101 (Ker). According to the Hon ble Kerala High Court, during the course of survey, the officer could record the statement of a person under sub-section 3(iii) of section 133A of the Income Tax Act. This clause authorizes the authority to record a st .....

er: ..Section 133A(3)(iii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Section 133A, however, enables the income-tax authority only to record any statement of any person which may be useful, but does not authorise taking any sworn statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under section 132 (4) of the Income-tax A .....

amination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law. Therefore, there is much force in the argument of learned counsel for the appellant that the statement elicited during the survey oper .....

, we would keep in mind the contentions raised by the ld.counsel, and the judgment of the Hon ble Supreme Court in the case of S. Khadarkhan & Sons 9supra). Now we take rests of the grounds. 9. In ground no.2, the assessee has impugned addition of ₹ 2,17,995/-. 10. Brief facts of the case are that the assessee was engaged in the business of cheque discounting. In this line of business, he has used to receive cheque from different persons and after charging a nominal commission, he hand .....

is reply. The assessee contended that bank account bearing no.2737 with Surat Mahila Nagarik Cowas closed on 28.1.2008 and he has not carried out any activity through this account. The ld.AO was not satisfied. He observed that the assessee had two bank accounts bearing nos.2737 and 2998 with Surat Mahila Co-op. Bank, Bombay Market, Surat. The assessee had turnover in these accounts, and he did not include the commission income of the total turnover in these accounts available at ₹ 28,99,90 .....

ief to the assessee. 11. Before us, the ld.counsel for the assessee contended that the assessee has closed bank account with Surat Mahila Co-op. Bank Ltd. The AO has got some information from the bank, but that information was never supplied to the assessee. The AO has given a CD during the remand proceedings called for by the CIT(A), but that CD never opened even before the AO. According to the allegation of the Department, the assessee was provided bank statement in the shape of CD which indic .....

being any clinching evidence on this issue, it will be a speculative finding at the end of the Tribunal. The AO has been emphasizing that he called for information from the bank disclosing that the assessee has made transaction, but the assessee has been refuting this information of the AO. The information is not available on the record. The assessee has challenged the AO as well as took a specific plea before the CIT(A). But the AO is silent in his remand report. Therefore, we deem it appropri .....

n cheque discounting activity. This ground of appeal is allowed. 13. In ground no.3, the assessee has challenged addition of ₹ 15,08,836/- 14. Brief facts of the case are that during the course of survey two seals of M/s.Anjani Textiles and M/s.Ambica Textiles were found from the office premises of the assessee. According to the AO, there were three bank accounts in the names of these concerns with Adinath Co-op. Bank and Surat Mahaila Nagrik Co-op. Bank. The AO has observed that in the As .....

. The assessee is involved only in cheque discounting business. This turnover has duly been accounted in the cheque discounting business. But the AO was not satisfied with the explanation of the assessee. He contended that the profit at 10.55% of the turnover available at three bank accounts in the names of M/s.Anjani Textiles and M/s.Ambica Textiles with two cooperative banks has to be estiamted. The AO has estimated the profit at ₹ 15,08,836/-. Appeal to the CIT(A) did not bring any reli .....

of textile items. The AO has simply assumed that since two seals are available, and assessee has shown income for two years earlier, therefore, he should have income in this year also. This observation is not based on any material. If this type of thump rule is being upheld, then there will be no end, therefore, we allow this ground and delete the addition. 16. Ground No.4. In this ground of appeal, the grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of S .....

833/- should not be considered as unexplained investment, and it should not be added as the income for the year under consideration. In response to the show cause notice, the assessee has made the following reply. Your proposed action to add ₹ 12,86,833/- being the amount receivable as evident from Page 12 ofB-1: Page 12 of B-l found during the survey proceedings shows a list of persons from whom amount receivable by the assessee. Details regarding the same are as follows: a) ₹ 15,00 .....

as a loan. (Copy of ledger duly signed is attached). d) ₹ 5400/- from Sanjay Shah: It is an outstanding amount receivable from Sanyay Shah since the amount was given by the assessee as a loan Copy of ledger duly signed is attached). e) ₹ 2340/- from Manish Damania: It is an outstanding amount receivable from Manish Damania since the amount was given by the assessee as a loan, (Copy of ledger duly signed is attached). f) ₹ 1000/- from M. D. Mama: It is an outstanding amount rec .....

0/-from Navinbhai: It is an outstanding amount receivable from Navinbhai since the amount was given by the assessee as a loan. (Copy of ledger duly signed is attached). j) ₹ 2200/-from V. R. Shah: It is an outstanding amount receivable from V. R. Shah since the amount was given by the assessee as a loan. (Copy of ledger duly signed is attached). k) ₹ 200/- from Pareshkumar: It is an outstanding amount receivable from Pareshkumar since the amount was given by the assessee as a loan. ( .....

ached. o) Rs.l,44,866/-from Bharatbhai: It is the amount receivable out of Third Party Shroff cheque discounting. Copy ledger is attached. p) ₹ 80,700/-from Ketanbhai: It is the amount receivable out of Third Party Shroff cheque discounting. Copy of ledger is attached. q) ₹ 1,52,319/- from Nareshbhai Jhaveri: It is the amount receivable against theagreement to sale Wagon-R car. Xerox copy of the agreement to sale is attached along with a copy of ledger. r) ₹ 7,81,100/ from Sure .....

such third party Ch./DD discounting and the same has also been offered for tax in the return of Income. Thus from the above explanations, ledger accounts & proofs, it is clear that the assessee had simply made the total estimated fund to be received from various persons against loans & advances given to various persons, from the Third Party Shroffs & an estimated amount on sale of Car & Flat. Considering the above facts, the amount receivable reflected in the Page 12 ofB-1 is fu .....

e addition. Appeal to the CIT(A) did not bring any relief to the assessee. 19. The stand of the assessee is that books of accounts were recorded upto 31.3.2008. The assessee has duly explained that books were lying with office of the Chartered Accountant. These transactions had been mentioned in the books and they are not unexplained unaccounted investment. According to the assessee, he has entered into an agreement to sell Flat at Rivera Tower and was to receive ₹ 7,81,100/-. How that can .....

100/-. According to the assessee, this amount was receivable from one Shri Suresbhai Nareshbhai. The assessee had entered into agreement for sale of flat at Rivera Towers. Copy of the agreement to sell was filed before the AO. This flat has been shown by the assessee in fixed assets in the balance sheet. The ld.AO has never tried to verify the facts in this connection. If it was sale proceeds, which was to be received by the assessee, then how it could be an unexplained investment at the end of .....

g the action of the AO in making addition of ₹ 67,75,000/- with the aid of section 68. As observed earlier, during the course of survey, certain loose papers were found which was inventorised as Annexure-B/1. On page no.14 of this annexure, a narration in coded word 67,750 was found. The assessee has explained that it was an amount of ₹ 67,75,000/-. In the statement given on 6.3.2009, the assessee has disclosed that it is a loan taken from one Shri Narottambhai Patel, resident of Mah .....

This explanation of the assessee was not accepted by the assessee on the ground that the assessee failed to furnish name and address of the shroff from whom he claimed to have taken cash loans. In his initial statement, he has submitted that it was a loan. The assessee has furnished a detailed reply of his position for the first time on 22.3.2013 i.e. at fag end of the assessment proceedings, and the AO could not investigate the authenticity of the claimed by the assessee. Accordingly, he made a .....

in the opinion of the AO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Before embarking upon any inquiry on the nature of dispute and facts of the present, we would like to make reference to various answers given by the assessee in his statement recorded on 20.3.2009 and 30.3.2009. These statements were given on oath in the subsequent inquiry conducted by Dy.Director of Income Tax (Investigation). Question No.4 in the stateme .....

on as well as about the rest of the amount of ₹ 12,25,000 ? Give details. A.4 The above referred amount of ₹ 67,75,000 has been taken by me during my cheque discounting business from other Shroffs by 'giving third party cheques. From the period of 1-2-2009 to 24-2-2009, I have taken total cash amount of ₹ 67,75,000 and till this date, the third party cheques of ₹ 55,50,000 of the different parties were given. As regards the rest of the amount, the cheques of the prior .....

ated 20-3-2009, your statement of oath was recorded and during the recording of this statement, in your answer to question No. 4, you have stated that as per the papers impounded from your office premises during the survey proceedings, you have received an amount of Rs.total ₹ 67,75,000 for the period from 1-2-2009 to 24-2-2009 and this amount has been taken by your from other Shroffs during your cheque discounting business, after giving third party cheques to them. You have also stated th .....

in case if you have received cash amounts from other Shroffs also, by giving them third party cheques, then give their name, address, etc. A.2 Once again I confess that the above referred amount of ₹ 67,75,000 was taken by me from the period of 1-2-2009 to 24-2-2009 on different dates from other Shroffs, by giving them third party cheques. In my statement given during 'the survey proceedings, I had told that I had taken this amount from a person who is doing the work of Diamonds Broke .....

p the tax upon the above referred amount of commission earned by me. Q.3 The above referred cash transactions of ₹ 67,75,00.0 are connected with your cheque discounting business. What is the proof with you to show that this amount is not a cash loan taken from any person ? A.3 I do not have its any proof but these type of transactions are being done in the business of cheque discounting and whenever any Shroff doing cheque discounting business does not have any cash amount with him, then h .....

ash with the bank in which he had accounts. Cheques received from various persons for discounting are given to Third party shroff to be deposited in that other shroff's bank account and after getting the cheques cleared, that other shroff gives cash to the assessee which he had to give to the concerned persons from whom cheques are received. This is a well known and accepted business modus operandi in the cheque discounting business. Transaction indicated in the page 14 of B-1 were entered i .....

at he had carried out this third party ch. Discounting with the assessee and earned the the ch. /DD discounting charges & offered for tax the same in his return of income. Xerox copy of the same is attached herewith. Thus , it is clear that transaction reflected in the impounded material (page 14 of B-l) were related to the cheque discounting done through Third party shroff and not regarding cash loan received by the assessee from various persons. Assessee had also earned cheque discounting .....

ransactions of Third Party shorff Ch./DD discounting on which the assessee earned income which was offered for tax also. Therefore, your proposed action to add ₹ 67,75,000/- is not tenable in the eyes of law. 24. If we make an analysis of these materials, then it would indicate that the AO is possessing one loose paper in which entry 67,750 in coded word was found to be recorded. The assessee was supposed to give explanation about this entry. According to the assessee, it was related to ch .....

he shroff from whom he has taken cash for discounting cheques. While appreciating this factual background, we have to appreciate the nature of business, assessee was conducting. The AO has not disputed the turnover in cheque discounting business achieved by the assessee. It was more than ₹ 36 crores. In his replies given on oath, he has specifically explained as to how this entry was made. He has refused to disclose identity of the persons from whom he might have taken cash, because that w .....

in the source ? Evidence possessed by the Revenue is the loose paper in coded word. As far as loose paper is concerned, there is no dispute about this fact. The dispute is, what inference one could draw from the page. For drawing inference, we have three statements and nature of assessee s business plus evidence produced during assessment i.e. confirmation etc. As far as statement of the assessee dated 6.3.2009 is concerned, it was only a corroborative statement, because, it was taken without oa .....

nd of appeal and delete addition. 25. Ground no.6. In this ground of appeal, the grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of ₹ 2,50,000/- which was made by the AO on the ground that the assessee has made unexplained investment. 26. Brief facts of the case are that during the course of survey a green coloured pocket diary was found and seized. It was inventoried as B/6. On page no.1 of this pocket diary, there were different dates and amounts were .....

unexplained investment. In response to the show cause notice, it was contended by the assessee this investment has duly been disclosed in the books of accounts. It is available in the balance sheet. The assessee has entered into an agreement with Shri Janak Patel and therefore, investment has duly been disclosed in its book. It cannot be treated as undisclosed investment. The ld.AO did not accept this contention of the assessee. He observed that at the time of survey, books were not complete. As .....

ilable at page no.53 of the paper book. He contended that copy of the balance sheet is on page no.91 of the paper book. The assessee has capital balance of ₹ 30,88,195/-. In the list of fixed assets, the assessee has shown this flat. Thus, the ld.AO has erred in making the addition of ₹ 2,50,000/-. The ld.DR, on the other hand, relied upon the order of the AO. 27. We have duly considered rival contentions and gone through the record carefully. The AO did not examine the issue with th .....

It was not necessary for the assessee to complete entries upto 6.3.2009. Thus, the AO ought to have examined this aspect from the books of accounts when the assessee has produced. The assessee has also pointed out that he is an old assessee. Even in the Asstt.Year 2007-08 assessment was framed under section 143(3) r.w.s. 147. This assessment was made on 26.12.2011 i.e. after the survey. Thus, it cannot be said that the investment was not recorded in the books, and therefore, it is an unexplained .....

survey, writing pads were found and impounded, which were inventorised as B-13 . On page no.1 of B/13 there were narrations exhibiting investment in shares. When this fact was confronted to the assessee during the course of survey, it was contended by him that these are the investment recorded in coded words. Though they represents total investment of ₹ 11,40,920/-. The assessee had made investment through other persons, and in order to keep a track, he has noted down these details. The AO .....

has duly disclosed this investment in the balance sheet. Copies were available at page no.91. The assessee has shown investment of ₹ 11,41,000/- under the head Other Investments Alternatively, he contended that once shares were not found in physical form, then, no assumption is to be drawn of the investment, because, mere entries would not be substituted by the investment in shares in the assessee s ownname. The ld.DR, on the other hand contended that books were written upto 31.3.2008 onl .....